Oil News: War Premium Underpins Crude Oil as Traders Await EIA After API Surge

WTI Crude Pulls Back After Seven-Month High

West Texas Intermediate (WTI) crude oil futures are edging higher on Wednesday after hitting a seven-month high earlier in the week. Profit-taking and position squaring are likely behind the slight setback from this high ahead of today’s U.S. Energy Information Administration (EIA) inventories report and Thursday’s third nuclear talks meeting between the United States and Iran.

At 11:44 GMT, April WTI Crude Oil Futures are trading $65.84, up $0.21 or +0.32%.

All Eyes on the EIA Report

Today’s EIA report, due to be released at 15:30 GMT, is expected to show a build of 1.3 million barrels of crude. Last week, the agency reported a 2.3 million barrel decline. Over the past five years, this time period has shown an average increase of 3.1 million barrels.

Ahead of the EIA data, the news wasn’t particularly bullish for oil prices, in fact, it was outright bearish, with the American Petroleum Institute (API), late Tuesday, reporting a massive 11.43 million barrel surge in U.S. oil stockpiles. While geopolitical issues have underpinned prices for weeks, perhaps capping gains have been concerns over huge inventory gains as global supply continues to exceed demand.

Iran Keeps the Risk Premium Alive

Despite today’s early setback, WTI crude oil remains well supported by speculators and hedgers reacting to the threat of military activity between the United States and Iran that could disrupt supply from the Middle East.

According to reports, the two countries will meet again on Thursday in Geneva, Switzerland, to discuss Iran’s nuclear program. The U.S. wants to shut it down, while Iran argues it has a right to have nuclear facilities that produce weapons grade uranium. The U.S. has a naval force in place off the coast of Iran as it tries to force the nation to halt its nuclear and ballistic missile programs.

Last night President Trump, in his State of the Union address, said he would not allow a country like Iran, which he described as the world’s biggest sponsor of terrorism, to have a nuclear weapon, Reuters reported. This comment was enough to keep the risk premium intact for the most part, but was not powerful enough to encourage new buying.

Technical Picture: Uptrend Intact but Being Tested

From a technical perspective, the main trend is up according to three metrics: moving averages, trend line and swing chart.

Moving average support is being provided by the 200-day at $61.01 and the 50-day at $60.59. The latter is coming close to making a bullish crossover of the longer-term indicator.

Trend line support is at $64.98 today. A failure to hold will weaken the uptrend.

Swing chart analysis says a trade through $67.28 will signal a resumption of the uptrend, while a trade through the nearest swing bottom at $61.76 will weaken the trend.

Thursday’s Talks: The Market’s Next Flashpoint

In my opinion, traders are eyeing the Thursday meeting as a key marker that will determine whether the U.S. attacks Iran this weekend. However, the meeting will have two outcomes, either talks break down or they continue. If the negotiations linger then traders will start focusing on the huge supply buildup, which could cause some temporary weakness.

More Information in our Economic Calendar.